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Community Reinvestment Fund, USA
Community Reinvestment Fund, USA
New Markets Tax Credits Are Not Just For Big Deals
Presented by:Frank Altman, President and CEO
Community Reinvestment Fund, USA
A national non-profit financial services organization based in MinnesotaProvides capital to communities by purchasing loans from community development lendersTypes of loans:
Business LoansAffordable Housing Community Facilities
Our Mission
To transform the community development finance systemby accessing capital markets on behalf of local development lendersto enable them to increase their impact on the lives of people and their communities
National Accomplishments
$984 million provided to 153 lending partners.2,200 loans in 47 states.36,000 total jobs created/retained, 4,500 of those to minorities or women600 minority and women-owned businesses supported16,500 affordable housing units2,100 childcare slots2,800 slots at educational facilities104,400 served at community facilities States in which CRF has purchased loans
Investing in Communities across the United States
Greater Brunswick Charter School New Jersey
Problem: School was forced to find a new location.
Solution: CRF and NJCC provided a $1.4 million NMTC loan.
Outcome: School used loan to purchase a renovated facility – adding 100 students.
Problem: Jackie Hamilton needed financing to expand her wig-making business.
Solution: CRF and Minneapolis CPED provided an $82,000 NMTC loan.
Outcome: Jackie purchased a new commercial property for her business.
Jackie Blu Wigs Minnesota
New Markets Tax Credits – How do they work?
Makes a Qualified Equity Investment in…
Provides counseling or services to…
Invests capital inor makes loans to… Buys loans from…
Invests capital inor makes loans to… Makes loans to…
Makes loans to orinvests capital in…
Advantages of CRF’s NMTC Program
No need to obtain an allocation National distribution Developed infrastructure to comply with investor & compliance reporting requirementsProvide standardized documentation for loan transactionsOriginate & service loans, maintaining relationship with customers while generating fee incomeIf loan doesn’t qualify, can use CRF Business Loan Product
New Markets Tax Credits Can Work for Small Businesses
278 Loans totaling $200.9 million, average size $723,000More than 90% of loans in areas of greater economic distress100% of loans with more favorable termsLoans from national distribution platform Total Dollars Leveraged – $501 million 2nd lien financing - 70%90% Loan To ValueCRF Loss Ratio – 47 bps (as of 3/30/08)
Value of Partnering with CRF
CRF Provides Value to Community Lenders and Funders:Leverage of grant dollars:
$1 grant leverages $31 in direct investment
Collaboration among community partners
Alternative to public funding for community development
National community impact—currently in 47 states
GrantCRF
Funding Additional Investment
1 31 62
How CRF Leverages Funds
Purely Charitable Purely Market
Market-Rate Investments
80%Charitable
Contributions 2%
PRIs and Social Investments
18%
2% charitable contributions 18% social-rate investments80% market-rate investments
Building a Brighter Future
Impact of Partnering with CRF:
Deliver billions of dollars in capital to low and moderate income communities
Improve the lives of millions of people in low income communities
Bring securitization model to scale for the community development finance industry
Thank You
Frank AltmanPresident and CEO
Community Reinvestment Fund, USA801 Nicollet Mall, Suite 1700W
Minneapolis, MN [email protected]
612-338-3050 phone
For additional information contact:
Or visit www.crfusa.com
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Smaller NMTC Deals Funded By Individual Investors
Eclypse provides non-traditional financing to companies with primary operations in distressed, rural communities.
We make equity and debt investments in a broad array of unique, smaller manufacturing, assembly and distribution companies.
Each of our transactions features a unique set of investors alongside which our firm commits our own capital.
We target companies which offer products that are well suited to systematic processes and uniquely address small to mid-sized niche markets.
We emphasize granular financial analyses to identify, implement and monitor opportunities to increase value.
We seek special situations, including capacity expansions, acquisitions and turnarounds, which feature a compelling near-term need for non- traditional financing.
About Eclypse Investment Group
Eclypse channels capital and advice to promising, often underserved companies with primary operations in less-populated areas
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Smaller NMTC Deals Funded By Individual Investors
Eclypse partnered with an experienced manager to purchase a bathware manufacturing facility located in Union Point, Georgia.
In addition to approximately $2.0 million of secured bank debt, $1.0 million of equity or other patient capital was required to fund the purchase.
Eclypse elected to structure the patient capital piece as an unsecured, 7-year, 9% interest-only subordinated note.
An unleveraged NMTC structure was utilized to raise capital to purchase the subordinated note.
QEIs were sold in $100,000 and $150,000 units to 8 individual investors.
Georgia Bathware Transaction
Eclypse received a modest warrant position (<2%) at closing and is paid a 1% annual fee to manage the sub CDE
I
I
I
I
I
I
I I
EclypseSubsidiary
CDE$1.0 millionCash
$1.0 millionCash
GBQEIs
SubordinatedNote
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Smaller NMTC Deals Funded By Individual Investors
Speed and Efficiency
Capital formation process is expeditious, with an emphasis on simplicity and transparency.
Relatively Attractive Cost of Capital
Individuals often have lower return expectations vis-a-vis institutional private equity and mezzanine funds.
Flexibility
For smaller transactions, individuals often are more receptive to innovative structures customized to meet a company’s unique requirements.
Patience
Today’s environment, characterized by low interest rates and choppy equity markets, bodes particularly well for 7-year structures which feature attractive cash yields and NMTCs.
Eclypse Securities LLC, an Eclypse affiliate and FINRA member firm, handles securities sales to individuals
Why Solicit Individual Investors for Smaller NMTC Deals?
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Smaller NMTC Deals Funded By Individual InvestorsProfile of NMTC Individual Investor
Eclypse is experiencing increasing individual investor demand for NMTC investment opportunities
Entrepreneurs and Professionals
Eclypse’s individual investors typically are current or former advisory clients of our firm. From time to time, friends and business associates of our portfolio company managers are invited to participate.
Liquid Assets > $2.0 million
Eclypse works to limit each individual investor’s commitment to a deal to $200,000 or <10% of their liquid assets.
No AMT or Passive Income Limitation
Eclypse screens prospective individual NMTC investors to ensure they can efficiently utilize the credit.
Investment Objectives
We seek individuals who instinctively understand and appreciate the company-specific risks they are assuming.
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Smaller NMTC Deals Funded By Individual Investors
Probability Of Success
Low
Small Large
Attracting large auto plantto your community
Technology Startup
Grocery store
Day care center
Expansion of localManufacturer/distributor
High
Near Term Impact on the Local Economy
Manufacturing Startup
Small Companies Can Significantly Impact Local Economies !
2008 National Housing & Rehabilitation Association Summer InstituteJuly 23, 2008
Structuring Smaller NMTC Transactions Funded By Individual Investors
Presentation To
SMALL NMTC INVESTMENTS
NHRA SPRING CONFERENCE(Santa Fe ,NM)
July 23, 2008
Capital Needs Spectrum
96% to 100%
76% to 95%
0% to 75%
• Sponsor or outside investor equity• High yield requirements
• Subordinate or “Mezzanine” Debt• Gap financing• More narrow range of debt providers• Higher risk – Contains the majority of risk for outside
fund providers
• Senior or first mortgage debt• Low cost – low risk• Wide range of debt providers• Tight underwriting standards
Home Loan Structure-Yesterday
BankInvestor
Homeowner
Home Loan Structure-Today
Servicing Bank GSEs
Originating Bank
Homeowner
Lots of Investors
NMTC Structure - Today
Investment FundTax Credit Investor Fund Lender
CDE
Qualifying Project(s)
U.S. Treasury Dept.
$25,000,000
Tax Credit Equity
$75,000,000
Fund Loan
$100,000,000 QEI
$100,000,000 QLICIs (Debt and/or Equity)
NMTC Allocation
NMTC Structure - Today
• Fund Lender is most challenging player – “Upper-tier” debt is indirect lien– Unable to get funds if CDE forecloses on
asset– Capital requirements most likely higher in
NMTC structures (seven-year hold)– Limited staff and legal capacity– Legal lending limits– Difficult to implement principal amortization– Investor debt capacity limits
NMTC Structure - Tomorrow
Investment FundTax Credit Investor Fund Lender
CDE
Qualifying Project(s)
U.S. Treasury Dept.
$25,000,000
Tax Credit Equity
$75,000,000
Fund Loan
$100,000,000 QEI
$100,000,000 QLICIs (Debt and/or Equity)
NMTC Allocation
Capmark3rd party liquidity pledge and
indemnifications
Lots of Investors
NMTC Structure - Tomorrow
• Fund Lender (Capmark Structure) – Analysis & Structure to make lien as comparable to direct first
lien as possible– Liquidity facility to allow Fund Lender to get funds if CDE
forecloses on asset– No pre-determined term requirements to decrease likely capital
requirements– Education and depth of Infrastructure to supplement staffing
requirements and legal capacity needs– Simplified documentation to allow enable smaller transactions– Resources and structures to assist with implementation of
principal amortization– Make “upper-tier” debt more liquid to help Fund Lender manage
debt capacity limits
THANK YOU!
Randall W. KahnManaging Director
Capmark Finance Inc.New Market Tax Credits Program
[email protected](202) 467-0032